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Cadbury set for confectionery split

By staff reporter , 16-Mar-2007

Cadbury Schweppes has said it will separate its confectionery and US soft drinks businesses, sending ripples of speculation across the financial sector about the firm's motives.

News of the split comes in the same week as notorious investor Nelson Peltz took almost three per cent of Cadbury Schweppes' shares, a double-whammy that has prompted a furore of speculation about the UK-based firm's future.

 

 

 

Todd Stitzer, Cadbury chief executive, said the separation would help each division focus on "further revenue growth, increasing margin and enhancing returns for their respective shareowners".

 

 

 

Confectionery contributes around 60 per cent of revenue for the group but the division has been rocked by a series of scandals throughout the last year.

 

 

 

Last summer, salmonella contamination in the UK forced the company to recall a number of its core brands. Total loss from the incident has been estimated at £30 million (€43.7m) but this figure may well grow as local authorities consider the case for prosecution.

 

 

 

Cadbury's Nigerian operations are also under scrutiny after it was discovered management were falsifying overly-optimistic profits for the business. An investigation by Pricewaterhouse Coopers is currently underway and last week sources in the media speculated that shareholders were looking to pursue legal action against the company.

 

 

 

The firm said it expects loss from the Nigerian irregularities to reach as much as £10 million (€14.8m).

 

 

 

Cutting confectionery operations from Cadbury's drinks business will allow the chocolate-maker to concentrate on reviving sales and strengthening consumer confidence while ensuring drinks brands remain untainted.

 

 

 

Cadbury's Stitzer said significant opportunities existed for higher margins and sales in global confectionery. Confectionery sales have grown five per cent annually for the last three years, and gum sales have increased 10 per cent in that time.

 

 

 

One analyst said the firm may have made the final decision on a split after a series of shareholder meetings.

 

 

 

The company spoke to shareholders representing around 40 per cent of its shares, following its preliminary results announcement on 20 February. Full details of how the business will be divided up will be announced when the group release a trading update on 19 June.

 

 

Julian Lakin, analyst at Mirabaud Securities, questioned how much extra value could be gained by the split.

 

 

"I don't think it's a case of two plus two equals five, probably more something like two plus two equals 4.2."

 

 

 

Lakin added it was possible one, or perhaps even both, of the businesses could be subject to a takeover offer. "Some people in private equity might be invited by the cash flow of the beverage business."

 

 

 

The future role of Nelson Peltz may also be a factor in Cadbury's development.

 

 

 

Peltz, who heads Trian, a US-based hedge fund, is renowned in finance as an activist shareholder and has previously attempted to make changes at another multinational food group, Heinz.

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